06/02/2008

Futures analysis

The futures are falling down after retesting the March low on monday. The market gapped down in the morning as a result of negative close in the States yesterday and finished just only half percent above previous close. Today's low is also prior resistance level of 2885, which was tested in late January, during the panicky selloff. Low volume pullback, that recently took place is getting confirmed daily as a natural continuation pattern in current long term downtrend. If 2885 support is broken, then the nearest downside target in the daily timeframe would appear to be 2680 low that was established on 22nd of January. The U.S. companies are cutting profit forecasts, confirming earlier concerns about recession, so the stock markets are returning to downtrends. I do not think, that further rate cuts will change market's opinion on what is going on in any way. Weakening Dollar will be inflicting pain to the stock market by causing inflationary pressures.

Two days ago I stated, that if the 3050-70 support area fails to hold, then you would start to pay attention to the next nearest downside targets - 3030, 3000 and 2930. Yesterday, the futures opened at the upper support area band - 3070 and then posted only a flat corrective pattern, which eventually led to a sharp decline late in the day. This whole downside action was caused by poor macroeconomical data from the U.S., again spurring recession concerns. As you can see on the intraday chart, such important psychological catalysts often cause rapid emotional reactions in the markets, which in case of WIG20 futures resulted in rejecting all of previously mentioned potential support levels. The whole decline ended up today in the morning, as the futures posted a downside gap, falling into previous support/resistance area between 2885 and 2910. As a result of such a sharp downside move, the market quickly became oversold, so today's session was in an uptrend all the way to the close, entirely filling overnight gap. American indexes closed nearly 0,50% to the downside and that puts me into pretty much neutral/bearish stance for tommorrow.